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High Court Says Apple Can Be Sued Over App Store Policy, Fee

Apple is the legitimate target of the legal arrow let loose from unhappy app customers, the nation's highest court ruled Monday (May 13).

In a narrow opinion written by newest Justice Brett Kavanaugh, the Supreme Court has held that Apple can be sued for alleged monopolization of apps, affirming a Ninth Circuit decision and to accept Apple's argument why it could not be sued would be to provide "monopolistic retailers with a how-to guide for evasion of the antitrust laws."

Kavanaugh sided with the more liberal court contingent in the 5-4 decision, writing for Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan, with Chief Justice John Roberts, and Justices Clarence Thomas, Samuel Alito and Neil Gorsuch dissenting, with Gorsuch penning the dissent.

Apple had argued that iPhone users could not sue it because they weren't direct purchasers from Apple but, instead, from the developers in the App Store. The court instead found that antitrust law and precedent clearly showed that Apple could be sued for the pricing and polities of its online store, including the likely pass-through of that 30% developer fee (which the developers could not opt not to pay) to consumers (who could not opt not to use the Apple store for apps).

A group of iPhone owners had sued Apple, saying it had monopolized the market for apps and unlawfully used that power to "charge higher-than-competitive prices," the court said, calling that a classic antitrust claim. The court did not rule on the underlying argument, only that Apple was the legitimate target of that legal shot.

App developers get to set the retail price of their apps, but Apple charges an annual $99 membership fee and takes a 30% cut of the sales price, so, said Kavanaugh, "Apple pockets a 30 percent commission on every app sale."

The phone owners sued back in 2011, saying that means Apple locks users into paying Apple's 30% fee, whether or not they want to buy apps elsewhere (they can't) or for less. They said in a competitive market, Apple would be under pressure to lower that 30% fee.

Apple said that since they were not direct purchasers, they could not sue. The court didn't see it that way.

"We disagree," wrote Kavanaugh. "The plaintiffs purchased apps directly from Apple and therefore are direct purchasers...[under relevant legal precedent] "At this early pleadings stage of the litigation, we do not assess the merits of the plaintiffs’ antitrust claims against Apple, nor do we consider any other defenses Apple might have. We merely hold that the

Illinois Brick direct-purchaser rule does not bar these plaintiffs from suing Apple under the antitrust laws. We affirm the judgment of the U. S. Court of Appeals for the Ninth Circuit."

Kavanaugh wrote that Apple was essentially arguing that consumers could only sue the party that sets the retail price, whether or not that party--in this case the developer--sells directly to complaining party.

Under Apple's theory, wrote Kavanaugh, "a consumer could sue a monopolistic retailer when the retailer set the retail price by marking up the price it had paid the manufacturer or supplier for the good or service. But a consumer could not sue a monopolistic retailer when the manufacturer or supplier set the retail price and the retailer took a commission on each sale."

He wrote that "Apple’s line-drawing does not make a lot of sense, other than as a way to gerrymander Apple out of this and similar lawsuits."

The court majority was not about to accept that.

"Apple’s line-drawing does not make a lot of sense, other than as a way to gerrymander Apple out of this and similar lawsuits, " the decision held. "In sum, Apple’s theory would disregard statutory text and precedent, create an unprincipled and economically senseless distinction among monopolistic retailers, and furnish monopolistic retailers with a how-to guide for evasion of the antitrust laws."

In the dissent, Justice Gorsuch writes that the majority relies on "convoluted pass-on theories" of damages for overcharges some other party might--the developer--might or might not pass on to the consumer. "If the proximate cause line is no longer to be drawn at the first injured party, how far down the causal chain can a plaintiff be and still recoup damages?" 

The Computer & Communications Industry Association (Apple is not a member, but Google and Samsung are) was not pleased. It has filed and amisuc brief in opposition to the Ninth Circuit decision that Apple could be sued.

“The Court’s own precedents and the Sherman Antitrust Act did not appear to allow these lawsuits against so-called matchmaker companies," said CCIA President Ed Black "So it is disappointing the Court instead upheld the lower court ruling that puts multi-sided business models at risk of expensive, duplicate claims. 

The Open Markets Institute, which filed an amicus brief in support of the iPhone users, was understandably pleased. 

“This is an important win in the public’s fight against monopoly in the tech sector and elsewhere,” said Open Markets Legal Director Sandeep Vaheesan. “The Court followed its own precedent and the plain text of the Clayton Act and rejected Apple’s specious attempt to exempt itself and other monopolists from consumer antitrust suits for damages.”